Saturday, July 29, 2017

In an insurer’s ideal world, there’d be a profitable policy for every conceivable risk. Click once, and you’re covered.

In the real world, however, insurance coverage hasn’t kept up with the social and economic changes of recent years. Sharing economies have gained scale. Jobs have gone from full-time to gig-based. And the vast millennial generation has entered adulthood intent on completing any complex transaction in a couple of minutes online.

Insurance policies, in contrast, look the same as they always have.

But if it seems like old-school terms and sales methods no longer fit, give it some time. If there’s a way to make money selling coverage, assume insurers are working on it. If not a big insurer, then probably a startup.

“Insurance is such a big sector that even niche categories have the potential for building large businesses,” says Caribou Honig, a founding partner at QED Investors, a VC firm with a number of insurance investments. Startups are also competing with incumbents by building better interfaces to sell policies via smartphones.

So far this year, insurance-focused startups have raised more than $700 million in venture funding, according to Crunchbase data, with significant backing from both traditional VCs and large insurers. The lion’s share of investment has gone to companies pioneering and popularizing coverage categories and delivery models, with a particular focus on millennial customers.

Here are some of the areas new insurers are targeting (outside of healthcare, deemed too massive and politically in flux to address here).

On-demand insurance

Theoretically, people might like the idea of insuring personal belongings or big life events like weddings and world travel. In practice, however, few of us have time and inclination to shop for policies.

An emerging breed of on-demand insuring apps, however, are betting that more people will choose to buy coverage if doing so is fast, easy and affordable. Several are also folding in options to snap pictures of possessions to be insured, with quick quotes to follow.

The changing nature of work has also created demand for new kinds of coverage.

One of the most richly funded players in this space is Trōv, which has an app for quickly insuring personal and work items like laptops, smartphones and high-end cameras. The five-year-old company raised a $45 million Series D round in April led by reinsurer Munich Re, bringing total funding to nearly $90 million. The company has been operating in Australia and the U.K., including a recent launch in the U.S.

Cover, which just closed an $8 million Series A, offers a similar service. Customers take a picture of the item they want to insure and Cover offers a policy, underwritten by a partner insurance firm. Another player, New York-based Sure, has focused on on-demand coverage for events. The company raised an $8 million Series A round in January to build out its mobile app offering quick insurance quotes for things like weddings, baggage, flight cancellations and pet health. (Like Cover, Sure doesn’t actually underwrite the policies it sells. That’s done by big insurers like Nationwide, Chubb and MetLife.)

Driving new auto policies

Standard auto insurance policies aren’t always the best fit for people who drive very little or who borrow a car for a short time. Startups are attempting to deliver to these and other use cases.

One of the most richly funded insurance startups over the past few years is Metromile, which insures based on how much customers drive. Rack up few miles, and pay little beyond a small monthly base rate. Drive more, and it goes up. U.K.-based Cuvva, meanwhile, has raised seed funding to build out insurance offerings for short-term use of a car, for people learning to drive and for people who drive very little.

Covering homeowners insurance

Startup home insurance providers are also stepping up to compete. The group includes two-year-old Lemonade, a provider of homeowners and renters insurance that uses AI to price policies, while pledging leftover premium money to charity. The New York-based company has raised $60 million from VCs, plus an April investment of undisclosed size from insurer Allianz.

Silicon Valley-based Hippo is also marketing itself as a new kind of homeowners insurance company, with policies that offer stronger protections for common valuables like home electronics. Another newcomer in the space, Utah-based Swyfft, which markets itself as a provider of speedy quotes at competitive prices, raised a $7.5 million Series A earlier this year.

For short-term rentals, meanwhile, Slice Labs is partitioning off a space. The two-year-old company offers policies for homeshare hosts to cover property theft, damage to electronics, bug infestations and other problems caused by bad guests. Slice’s longer-term goal seems to be to position itself as an insurer for the gig and sharing economy, and it’s also currently testing a new offering for rideshare drivers.

New world of work

Like rideshare driving, many of today’s most common jobs either didn’t exist or weren’t nearly so popular years ago. The changing nature of work has also created demand for new kinds of coverage.

Insurance coverage hasn’t kept up with the social and economic changes of recent years.

Next Insurance, founded last year, sells coverage for yoga instructors, photographers, home contractors and others whose needs don’t always fit with standard insurance policies. The Silicon Valley company raised $48 million to date from VC and insurance industry backers. Bunker, which bills itself as an insurer for freelancers and independent contractors, is also scaling up. The San Francisco company closed a $6 million Series A round in May.

Life insurance, redux

Lastly, there’s life insurance. While this isn’t usually a top-of-mind topic for millennials, it is expected to become more important down the road, particularly as more members of the generation become parents.

A handful of venture-backed companies are looking to update the buying process. One is Ladder, which has raised $16 million to build out a platform for offering direct-to-consumer term life insurance online. Another, Brooklyn-based Fabric, has raised $2.5 million for its digital platform offering instant quotes on accidental death coverage, as well as broader life insurance policies.

Honig sees life insurance as one of the most promising areas for startups, which have the potential to supplant the longstanding model of face-to-face sales. “The typical life insurance product is overly complex and too opaque, which is in a sense OK when it’s pushed through a face-to-face channel,” he says. “But it is a problem for consumers looking to buy online.”

Covering their bets

With all the varieties of coverage out there, it remains the case that no one can affordably insure a venture capital investment portfolio. There are just too many risky wagers by design.

That said, insurance may be a safer bet than other sectors. It is a massive market. And given the hefty valuations industry leaders command, it’s easy to envision at least a few of today’s early-stage companies joining the unicorn club.